Intercept Pharmaceuticals Inc: A Whole New Class of Blockbuster Drug Is Born

Why Intercept Pharmaceuticals just quadrupled and Conatus Pharmaceuticals saw a 70% gain.

Jan 9, 2014 at 7:43PM
Even in the volatile world of biotech investing, the idea of a stock instantly quadrupling in value is like a unicorn -- a mythological beast that investors never expect to actually see.
 
Well, a unicorn just showed up today, and potentially brought an all-new class of blockbuster drugs with it.
 
Shares of Intercept Pharmaceuticals (NASDAQ:ICPT) shot up 281%, at one point hitting $305 per share. For reference, shares closed yesterday at just $72 and change. Intercept's competitor, Conatus Pharmaceuticals (NASDAQ:CNAT), enjoyed the day, as well, seeing a 57% pop in value just for having a similar drug in its pipeline.
 
Intercept crushed a mid-stage liver disease trial for its lead drug candidate OCA so resoundingly, that it ended the trial early, even though roughly half the trial population was considered non responsive because they hadn't yet finished their course of treatment. Wall Street analysts couldn't be more excited, issuing buy calls almost as quickly as shares were ascending.
 
What makes OCA so enticing is that it has an orphan drug designation, and is in late-stage trials for primary biliary cirrhosis (PBC), but its success today came from treating nonalcoholic steatohepatitis (NASH). This much more common disease is one of the leading causes for liver failure, but it has no approved treatments. An estimated 20 million Americans suffer from it. 
 
The most interesting thing to watch is how Intercept prices OCA if it's approved. It could follow an orphan drug pricing model for what is clearly not an orphan indication. There's an unmet clinical need, but the patient population is in the millions, not thousands. While some may question the fairness of that pricing, it has been done before. Questcor (NASDAQ:QCOR) used an orphan drug designation to increase prices throughout Acthar's non-orphan indications. While the practice has gained Questcor quite a few critics, investors have been handsomely rewarded -- shares are up 3,500% since 2007, when Questcor increased the price of Acthar from approximately $1,650 to $23,000. 
 
In the below video, health-care analyst David Williamson discusses today's amazing events, the potential market opportunity for Intercept, and the risk/reward dynamics of the stock post-quadruple.
 

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David Williamson has no position in any stocks mentioned. Follow David on Twitter: @MotleyDavid.

The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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